Stakeholders Raise 340B Concerns in Medicaid Drug Rebate Program Final Rule; CMS, With Hands Tied, Shrugs

On September 26, 2024, the Centers for Medicare & Medicaid Services (CMS) released a final rule implementing changes to the Medicaid Drug Rebate Program (MDRP). While not the focus of the agency’s rulemaking, stakeholders used the opportunity to comment on the proposed rule to air concerns and grievances related to the 340B Drug Pricing Program (340B Program). Although CMS acknowledged the flood of 340B Program comments, the agency ultimately punted on responding to stakeholders because the comments were outside the scope of the rulemaking. The response from CMS is understandable, but the numerous comments from stakeholders add to the growing calls for additional guidance and improvements to the 340B Program.

Relationship Between the 340B Program and the MDRP

The 340B Program requires drug manufacturers participating in the Medicaid program to provide certain covered outpatient drugs (CODs) to covered entities at reduced prices, known as the 340B ceiling price. Unlike Medicaid, which is administered by CMS, the 340B Program is administered by the Health Resources and Services Administration (HRSA). CMS and HRSA largely operate independently, even though both are subagencies of Department of Health and Human Services (HHS) and despite the overlap between the 340B program and Medicaid. As a result, CMS often does not opine on the administration of the 340B Program. For example, as a condition of participation in the MDRP, drug manufacturers sign the Pharmaceutical Pricing Agreement (PPA) committing to provide the 340B ceiling price to covered entities. Further, the unit rebate amount (URA) calculated under the MDRP, representing the rebate that manufacturers must pay to the Medicaid program in exchange for coverage of their drug products under the program, is used to calculate the 340B ceiling price. Therefore, it is not surprising that stakeholders would comment on CMS rulemaking related to the MDRP that could have impacts to the 340B program. This is especially true when stakeholders are facing a lack of guidance from HRSA on pressing and controversial topics within the 340B Program.

Concerns Raised by Stakeholders in MDRP Comments

The focus of the September MDRP final rule was mostly to provide guidance related to the misclassification of certain CODs under the MDRP. One of the key changes implemented by the final rule was a new definition of COD that served to potentially expand the number of drugs included under the MDRP. The final rule also implemented certain changes to Medicaid drug benefit administration and included new transparency requirements. Throughout the final rule, stakeholders opined on various finalized proposals to inform CMS how the proposal could affect the 340B Program. Below we highlight some of the topics mentioned:

• Definition of COD – CMS finalized a proposal to expand the definition of COD that would capture drugs utilized in bundled payments (historically excluded from the definition of COD) to the extent that such drugs could be separately identified. Additionally, CMS did not finalize a proposal to define vaccines (excluded from the MDRP). In both instances, stakeholders raised concerns that expanding the drugs included in the definition of COD could increase the total number of drugs eligible for manufacturer rebates and thus increase the total number of products eligible for 340B Prices.
• Penny Pricing – The 340B ceiling price is calculated as a function of the average manufacturer price (AMP) minus the URA. Historically, a manufacturer’s URA could not exceed 100% of the AMP. The final rule codifies the American Rescue Plan of 2021’s statutory removal of the cap on URA. Due to how MDRP manufacturer rebates are calculated, the removal of the AMP cap could result in substantially larger rebates (the URA) paid by manufacturers. However, current federal regulations state that when the 340B ceiling price calculation results in an amount less than $0.01, the 340B ceiling price will be $0.01, meaning the removal of the URA cap will not result in a negative 340B price ceiling for any drugs. That said, commenters noted that the changes to the URA calculation “prompts questions” on the future of HRSA’s penny pricing policy.
• Prescription Drug Benefit Cards for 340B Patients – CMS finalized a provision to require Medicaid managed care organizations (MCOs) to provide Medicaid enrollees with Medicaid-specific benefit cards containing unique combined BIN/PCN and group numbers to better identify drugs utilized by Medicaid patients. Commenters suggested that CMS implement a similar requirement for 340B patients to cut down on potential diversion of 340B priced drugs to non-340B patients. Commenters also noted that such a requirement would help reduce duplicate discounts. Federal law does not permit manufacturers to pay rebates to Medicaid on a unit of a drug dispensed by a 340B patient. Relatedly, commenters suggested that CMS work with HRSA “to ensure that Medicaid managed care plan utilization is added to the Medicaid Exclusion File (MEF) as a way to establish a mechanism to track and avoid duplicate discounts on Medicaid [MCO] utilization.”
• Dispute Resolution Amongst Manufacturers and Covered Entities – As it relates to the prohibition on duplicate discounts, stakeholders requested that CMS issue guidance to states to establish a “establish a transparent and consistent dispute resolution process to resolve issues regarding duplicate Medicaid/340B discounts between manufacturers and State Medicaid agencies.”
• 340B Covered Entity Discrimination – CMS finalized a proposal to require increased reporting by MCOs and pharmacy benefit managers (PBMs) of certain plan costs. Stakeholders requested that CMS use this as an opportunity to track what some characterized as “PBM discriminatory practices” such as “PBM payment cuts, that harm hospitals and community health centers that are 340B covered entities and possibly jeopardize patient access to 340B covered entities and contract pharmacies.”
• Refusal to Provide 340B Discounts on CODs – Due to the new definition of COD, some stakeholders requested that CMS provide guidance on the applicability of the 340B program to drugs temporarily suspended from the MDRP due to misclassification as a COD. Some stakeholders also requested that CMS implement civil monetary penalties (CMPs) on manufacturers that “fail to provide 340B discounts during the suspension of the drug due to the misclassification of the COD.”

A Telling Non-Response

CMS unsurprisingly responded to these comments by acknowledging the issues raised while noting that the comments were outside the scope of the final rule. The number of comments on 340B in a CMS final rule, however, is evidence of the growing number of stakeholders who have serious concerns related to the administration and impact of the 340B Program on their businesses, and who feel like their appeals for guidance and reform to HRSA have appeared to be going unheard. In the absence of HRSA engaging with these concerns, it appears many stakeholders are looking at any way possible to voice their concerns, and potentially push lawmakers and regulators for reform. 

Reform remains a difficult prospect, particularly when stakeholder concerns and proposed approaches to reform often vary wildly by industry. For example, the American Hospital Association (AHA) takes the position that the 340B Program should be protected and that efforts to “scale back, significantly reduce the benefits of, or expand the regulatory burden of the 340B program” should be opposed. On the other hand the Pharmaceutical Research and Manufacturers of America (PhRMA), a trade association representing drug manufacturers, takes the opposite approach arguing that more rules and oversight is needed to ensure appropriate utilization of 340B priced drugs by eligible patients.

It remains to be seen who, if anyone, will take responsibility for addressing stakeholder concerns.  HRSA could respond to the growing calls for reform with new guidance and rulemaking, although to date it has appeared to defer to Congress, who also cannot seem to settle on an approach for program reform. Either way, the lack of guidance has become a chasm that stakeholders are beginning to navigate. The industry has recently seen the results of independent stakeholder action within the 340B Program, and they are messy, worrying, and ultimately disheartening for those stakeholders searching for answers. For now, as has been the case for some time, the future direction of the 340B Program remains a question mark.

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